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No Rate Cut- so what?

Early this past week, the S&P500 dipped as pathologic fear spread that the Federal Reserve might hold interest rates steady, rather than cutting the benchmark federal funds rate.

I don’t think this headline anxiety is warranted, primarily because I don’t believe that a rate cut was ever in play.  The cause for the rate cut promulgation came from two sources:  1) the Trump administration whining for lower rates [to juice the economy prior to the next presidential election cycle] and 2) rumor mongering commentators that will say anything to get media attention.

While the Trump administration will go all out to coerce the Fed into lowering rates, the Opposition Party will pull all their strings to see that it doesn’t happen.  The fascist tug-of-war will likely end in a stalemate with rates remaining unchanged.

As to the babbling commentators- they have no predictive credibility.  During the last quarter of 2018 they were prognosticating about the inevitability of rising rates that would throw the economy into a recession.  In January 2019, after the Fed made it clear that they would hold rates steady, the kneejerk commentators started to talk up the possibility of a rate cut.  Pay them no mind.

The attached chart shows a weekly dip in reported AAII Neutral Investor Sentiment.  Neutral sentiment took a recent dip because of increases in both Bullish and Bearish sentiment; however, the Neutral position remains well above its historic average of 31%.  I interpret this data as an indicator that a lot of money remains uninvested on the sidelines and keeps trickling into the market as new record highs occur and retail investors fret over the “fear of missing out”.

Assuming that GDP keeps growing at 2.5-3% and corporate earnings come in at or near $170, then this market will keep grinding higher.  I expect at least 3000 on the S&P500 and plan to take US profits as this level is attained.  As to my International positions, I believe they have room to run and I have no immediate plans to liquidate them.

SPECIAL ANNOUNCEMENT: I was recently interviewed by Greg Patterson on the Father’s After 50 Podcast.  Greg did a fantastic job of delving into my past and hitting upon key elements that contributed to my ultimate success.  Check out the interview at:  https://fathersafter50.com/john-pugliano/


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